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(Last updated: 25 May 2011)
Trends and opportunities
The market
India’s infrastructure, building and construction industry presents itself as an attractive opportunity to potential investors, exporters, technology providers and consulting partners. Post-global financial crisis, it has huge potential for thriving investment opportunities across the world. However, on the other hand, it continues to suffer from poor execution causing time and cost overruns or issues pertaining to land acquisition and resettlement.
Since 2009, the Indian Government has introduced various policy-based as well as structural reforms not only to improve the pace of award and execution of large infrastructure projects, but also to improve the investment climate for private sector participation in all major infrastructure sectors. The growth intensive ‘Budget 2011’ was announced in February with a focus on two pivotal sectors, infrastructure and agriculture. For 2011-12 around A$5.13 billion has been allocated towards infrastructure development (a 23.3 per cent increase over the fiscal year 2010-11) and an estimated A$98.2 billion projected investments during the 12th Plan period (2012-2017). Half of this is expected to come from the private sector.
In order to fuel the infrastructure growth, governments at federal and state level, financial institutions and private sector companies will all have to pitch in. Consequently, the policy framework in infrastructure sectors today is much more conducive to private investment with many opportunities for public private partnerships. However, the infrastructure sector in India is dominated by a handful of large players who alone possess the expertise to execute the mega-projects as per the design capability, construction excellence and timely execution demanded in today’s world. With rejuvenation in the pace of infrastructure development and the tremendous opportunity it presents in the near future, there is a requirement for more competent players (perhaps of foreign origin) to enter the market to fulfil the technological and operational gaps that exist across the value chain. This could be a major entry point for large Australian infrastructure operators and technology suppliers.
The Indian infrastructure industry is set for a robust expansion over the long term, given the government’s efforts to attract capital for multi-billion dollar investments in transport, energy, ports/airports, utilities and urban infrastructure.
The growth in infrastructure is being driven by a host of factors:
- Favourable demographics. The Indian growth story is being lead by its huge base of skilled manpower. It is estimated that 70 per cent of the population in India shall be working by 2025. Moreover, the decline in the working age of population in India is likely to be slower relative to the other emerging economies, including China and Russia, signalling a long term continuation of the growth trend.
- Growing domestic demand. Rising income levels and changing consumer preferences have fuelled demand for a wide range of products and services. The number of households with income levels ranging between A$4,740 to A$11,850 is projected to increase from 10.9 million in 2005 to 55 million in 2015.
- Favourable investment climate. The Indian liberalisation process that began in 1991 has continued strength to strength with opening up of many sectors to foreign direct investments.
- Innovative modes of financing projects. The Indian Government is tapping alternative modes of financing infrastructure projects. For example:
- A new cess (tax) levied on sale of petrol and diesel in the country to fund two important road sector projects – Golden Quadrilateral and North-South East West Corridor.
- Special infrastructure debt funds proposed in Budget 2011 allows foreign institutional investors to invest in unlisted bonds in infra companies organised in the form of special purpose vehicles and given tax exemption benefits.
- To accelerate development in sectors such as railways, ports, housing and highways, Budget 2011 has allowed tax free bonds of A$71.88 billion to be issued by state-owned institutions such as Indian Railway Finance Corp. (A$23.96 billion), National Highway Authority of India (A$23.96 billion), Housing and Urban Development Corp. Ltd (A$11.98 billion) and ports (A$11.98 billion).
(Source: 'Opportunities in Infrastructure and Resources in India' Summary Report by KPMG and Austrade and www.livemint.com)
Opportunities
India still remains as one of the fastest growing free market economies in the world. While this growth opens up many opportunities for Indian companies, it also creates significant opportunities for Australian firms. The infrastructure sector in India, being the foundation for supporting economic growth, is very likely to witness huge investments over the next few years.
There exist multiple opportunities across the sectors under the infrastructure umbrella. Snapshots of these are provided below:
Railways
- Engineering, procurement and design of dedicated freight corridors
- Re-development of existing stations to world-class stations
- Mass Rapid Transit System (Metro) projects in Hyderabad, Mumbai and Bangalore, Kochi, Pune and Jaipur
Roads and highways
- Development of 35,000km of highways under the National Highways Development Programme initiated by National Highways Authority of India (NHAI)
- Conversion of 20,000km of state highways into national highways, along with the upgrading of 17,000km of the latter
- ‘Operate, Maintain and Transfer’ projects of public funded roads to be bid out by NHAI
- Expansion of existing roads and highways to 6-lanes, 4-lanes and 2-lanes for specified stretches
- Development of expressways and tollways
- Creation of ring roads, bypasses, grade separators and service roads
Ports
- Supply of two capesize cargo vessels of 180,000DWT (Dead Weight Tonnage) each for loading dry cargo like iron-ore, coal, grains etc, and five tug-boats for operations in two of India’s leading ports. Plans include having 20 capsize vessels by 2020.Port development projects (eg. construction of jetties and berths)
- Procurement or replacement of port equipment
- Channel deepening to improve draft
- Port connectivity projects
Airports
- Modernisation of metro airports
- Upgrading of 35 non-metro airports (including terminal building and airside works)
- Creation of training centres for aviation industry professionals
- Maintenance, repair and overhaul operations for current and future aircraft fleetfleet
Power
- 1,000MW solar power generation to be achieved by 2013 and 20GW by the end of 2022 under Jawaharlal Nehru National Solar Mission
- Supply of heavy engineering machinery for thermal and solar power generation on site one of India’s leading port and SEZ locations
- Opportunity to supply machinery/equipment for power generation projects having a capacity of up to to 15,000MW, in the pipeline by one of India’s leading infrastructure conglomerate by 2015
- Equipment/turbine supplying opportunities for wind energy power generation projects in pipeline (capacity up to 200MW) by one of India’s major clean wnergy producer
- Power generation including Ultra Mega Power Projects launched under Power Finance Corporation (in excess of 4,000MW) Power transmission grids
- Power distribution (including equipment such as transformers, generators and meters)
Real estate
- Opportunity to to set up manufacturing/services units in a leading SEZ development
- Construction of Metro stations and attached retail malls and recreational areas
- Retail, residential and commercial projects
- Green building projects
- Products such as cement, steel, timber and services – architecture, landscaping and master planning
Mining
- Mineral exploration
- Contract mining and mineral extraction
- Mineral processing
- Specialist ancillary services and systems including mine safety systems
Oil and gas
- Exploration including sub-surface mining and deepwater exploration
- Refining and transportation
- Oil and gas distribution and marketing services
Sports infrastructure
- Low cost solutions for community-based sport facilities
- Superstructure concept and design (embracing multipurpose use concept)
- New stadia and upgrades including shade structure, seating, lighting and turf
- Energy efficient and sustainable construction
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